Expert Commentary

NCCI Annual Issues Symposium—2016

The meeting provided a perceptive snapshot of the state of the workers compensation line and its future, along with a broader view of the insurance industry and the challenges that it faces.


Workers Compensation Issues
May 2016

Channeling Change

Bill Donnell, CPCU, the new president and chief executive officer of NCCI, opened the symposium by supplying his impressions of the workers compensation system in Channeling Change: Meeting the Challenges of an Evolving Market. He began by stating that the workers compensation system can and does achieve the goals of the "grand bargain." That having been said, Mr. Donnell offered that the system is under the lens of a microscope and that insurers and brokers could do a better job of sharing the good outcomes that the system produces. Too much emphasis and media time has been spent on the workers compensation horror stories, he said. He then furnished ideas that can be used to assure the health of the system.

First, stakeholders must address current challenges. As an example, Mr. Donnell offered up the recent Florida Supreme Court decision (Castellanos v. Next Door Co., 2016 Fla. LEXIS 885 (Fla. Apr. 28, 2016)) that struck down the cap on attorney fees in Florida. Decisions like this disturb the delicate balance of the system, and quick action needs to be employed to right the balance. He also suggested in his next point that it is imperative for all stakeholders to understand the proposition of workers compensation in order to make useful and impactive changes. Finally, Mr. Donnell suggested that there is a need to review whether or not the system adequately addresses existing workers compensation exposures.

State of the Line

The State of the Line was delivered by NCCI chief actuary Kathy Antonello, FCAS, FSA, MAAA. The speech delved into a comprehensive review of the current results for workers compensation and looked forward at some of the issues facing the line. Again this year, the workers compensation results offered signs that point to cautious optimism. The calendar year combined ratio dropped again for the fourth year, down 6 points from 2014's 100 to 94 for 2015. This is the lowest this indicator has been since 2006.

Lost time claim frequency in states administered by NCCI continued to decline, down 3 percent from the 2014 figure. And again in 2015, residual market premiums and participation remained flat. One ongoing issue that continues to hover over the line that was touched on by Ms. Antonello is the continued suppression of investment income. Since workers compensation claims tend to have a lengthy payout period, investment income has historically been useful in counteracting underwriting losses. To offset the lower generation of investment income, she indicated that there has been a refocusing on underwriting and the reserving process.

As to the future of the line, Ms. Antonello indicated that the workplace is changing and, as a result, so are the workers compensation exposures. One example she offered involved a new piece of equipment—a sewbot—that is able to actually sew on a curve. This will likely lead to the replacement of sewing machine operators in the workplace with workers to handle the robot's technical issues. The robot techs will be included in a clerical classification rather than a cutting and sewing category, vastly changing the landscape and risks in the workplace. Additional information about the presentation is available in the 2016 State of the Line Guide.

Insurance Industry Outlook

A review of insurance industry results with a focus on the workers compensation segment was provided by Robert P. Hartwig, PhD, CPCU, president and economist of the Insurance Information Institute (III), in his presentation The Shape of Things to Come for the Property and Casualty Market and the American Workplace. Dr. Hartwig also discussed the forces that are shaping the industry and its future. Industry-wide results for 2015 were a carbon copy of those for 2014. The return on equity (ROE) remained unchanged from 2014 at 8.4 percent. Profits are still below the prerecession period. Also of note, the 2015 combined ratio for the industry is 97.8 percent. This marks the third year in a row for underwriting profit and the first time this has happened since 1971–1973.

Dr. Hartwig then moved on to review the factors that will impact the future of the industry. He discussed which presumptive presidential candidate (Trump versus Clinton) would be better for the insurance world. History has shown that the president makes no difference. He stated, "disasters don't care who is president." Dr. Hartwig then talked a bit about the gig economy and his belief that this economic system is on the cusp of being politicized.

As an example, he offered the recent California decision that found an Uber driver to be an employee of Uber. He also talked about the huge impact driverless trucks will have on the workers compensation landscape. Currently, the transportation industry segment is responsible for 41 percent of all occupational deaths each year. The use of driverless trucks and truck caravans should certainly greatly reduce this number. Dr. Hartwig did point out that driverless trucks will bring new risks revolving around cyber-risks and the potential for hacking. He also discussed the idea that venture capitalists outside the industry are looking for the elusive insurance unicorn that will return a profit margin greater than has been traditionally seen in the industry.

Impact of Technology on Insurance and the Workplace

Building on Dr. Hartwig's presentation, Bill Hartnett, head of innovation at ACORD, discussed Insurance in an Exponential World. He advised that the industry needs to realize that insurance must progress and be ready to address the technological advances that will disrupt it. As respects workers compensation, Mr. Hartnett hypothesized there will be a shift in classifications as technology makes some of the more hazardous occupations obsolete, while there will be a shift in classifications as the production of goods becomes increasingly robotized.

He also examined the impact of autonomous vehicles on the industry and the idea that long-haul drivers will be replaced by technicians to program and guide the self-driving semis. Another industry segment that can also expect to be disrupted by technology is construction.

According to Mr. Hartnett, a 3-D printer has been developed that can create a custom home in 20 hours. The intent of the inventor is for this to be a quick response to Hurricane Katrina-type disasters, but the applicability to the industry as a whole is easy to see.

Workers Compensation Regulatory/Legislative Environment

The Regulatory and Legislative Trends Workshop handout details the 2016 legislative initiatives in the 51 jurisdictions along with significant court cases that have impacted the line in 2016. The document also offers state-specific residual market information as well as rate filings and underwriting results.

Workers Compensation Research Topics

The 2016 NCCI Research Workshop provided insights into several significant workers compensation subjects. Leonard F. Herk, PhD, senior economist with NCCI, supplied current information on The Affordable Care Act and Workers Compensation. The Workers Compensation and Prescription Drugs: 2016 Update was delivered by Sean Cooper, FCAS, MAAA, director and senior actuary with NCCI. A third presentation, Workers Compensation Excess Loss Development, was provided by NCCI practice leader and senior actuary Barry Lipton, FCAS, MAAA.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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